FTSE 100 deficit falls by £21bn over 12 months amid GMP changes

The combined deficit of FTSE 100 pension schemes dropped by £21bn to £1bn over the past 12 months, according to JLT Employee Benefits' latest monthly funding update.

Commenting on the report, JLT chief actuary, Charles Cowling said that “GMP equalisation continues to keep the pensions industry awake at night”.

However, he added: “The industry is slowly coming to terms with the scale of the task ahead and the efforts necessary to resolve the sex discrimination caused by GMPs.”

The deficit of FTSE 100 schemes also fell by £8bn in comparison to the end of last month (31 October), from £9bn to £1bn.

JLT’s latest figures in its monthly index on UK private sector defined benefit schemes revealed FTSE 100 companies have assets of £647bn and £648bn in liabilities at 30 November 2018. This gives the schemes a funding level of 100 per cent.

Compared to this time last year, asset values and liabilities have fallen by £15bn from £662bn and by £23bn from £671bn, respectively.

Cowling continued: “Pension schemes are going to have to recalculate benefits for millions of members, demanding fiendishly complicated calculations that will incur huge additional costs and resources.

“Moreover, ongoing administration costs for pension schemes are likely to increase significantly as a result.”

“Of course, this blow has come at a time when UK pension schemes and indeed, the wider economy, are facing a looming front of uncertainty as the Brexit deadline draws ever nearer.

“At this stage, it is impossible to know what impact Brexit will have - over either the short or longer term - but that very risk, and accompanying market uncertainty and volatility, is all the more reason for trustees and companies to be looking to take pension risks off the table.”

The FTSE 350 pension scheme deficit also fell from November 2017, from £29bn to £6bn, while assets over the same period decreased from £762bn to £731bn, liabilities fell from £791bn to £737bn and the funding level increased from 96 per cent to 99 per cent.

Cowling concluded: “The potential good news in all this, is that we may have an opportunity to simplify pension scheme benefits, using conversion legislation recently introduced.

“We will very soon be in a position to calculate the increase in total value required to each pension scheme member’s benefit.

“If this is done at the same time as benefits are automatically converted into a much-simplified form (including the abolition of all GMPs) then not only will individual pension scheme members get a more straightforward benefit but this simplicity will ultimately flow through to lower costs for companies.”

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